**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington
      D. C. 20549


**FORM
      10-QSB**


**QUARTERLY
      REPORT UNDER SECTION 13 or 15 (d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**


For
      the
      quarterly period ended March 31, 2007


Commission
      file number 0-25909


**Australian
      Forest Industries**


(Exact
      name of small business issuer as specified in its charter)




Nevada
              
              86-0931332(State
                  or other jurisdiction of
                incorporation
                  or organization)
              
              (I.R.S.
                  Employer
                Identification
                  No.)




4/95
      Salmon Street, Port Melbourne, Victoria


Australia,
      3207


(Address
      of principal executive offices) (Zip Code)





Issuer’s
      telephone number: 011 61 3 8645 4340




Check
      whether the issuer (1) has filed all reports required to be filed by Section
      13
      or 15(d) of the Exchange Act during the past 12 months (or for such shorter
      period that the registrant was required to file such reports), and (2) has
      been
      subject to such filing requirements for the past 90 days. Yes x No o




State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date.




The
      number of shares of the issuer’s outstanding common stock, which is the only
      class of its common equity, on March 31, 2007 was 257,400,680.









**ITEM
      1 FINANCIAL STATEMENTS**




CONTENTSConsolidated
                  Balance Sheets
              
              
              3Consolidated
                  Statements of Operations
              
              
              4Consolidated
                  Statements of Cash Flows
              
              
              5Notes
                  to Consolidated Financial Statements
              
              
              6




2




AUSTRALIAN
      FOREST INDUSTRIES AND SUBSIDIARY





CONSOLIDATED
      BALANCE SHEETS




March
                  31,
              
              December
                  31,2007
              
              2006(Unaudited)ASSETSCURRENT
                  ASSETSCash
              
              $
              5,009
              
              $
              4,894Accounts
                  receivable
              
              
              526,660
              
              
              1,493,473Inventory
              
              
              304,165
              
              
              740,384Prepaid
                  expenses and other
              
              
              116,491
              
              
              33,121Total
                  Current Assets
              
              
              952,325
              
              
              2,271,872PROPERTY,
                  PLANT AND EQUIPMENT, net of accumulateddepreciation
                  of $3,415,770 at March 31, 2007 and December 31, 2006respectively
              
              
              18,254,776
              
              
              17,929,297OTHER
                  ASSETSLong-term
                  timber supply contract, net of amortization of $138,377
                  and$144,345
                  at March 31, 2007 and December 31, 2006, respectively
              
              
              748,785
              
              
              742,307Total
                  Assets
              
              $
              19,955,886
              
              $
              20,943,476LIABILITIES
                  AND STOCKHOLDERS’ DEFICITCURRENT
                  LIABILITIESBank
                  overdraft
              
              $
              329,008
              
              $
              1,899,238Due
                  to National Australia Bank
              
              
              5,332,668
              
              
              5,209,380Accounts
                  payable
              
              
              6,266,876
              
              
              5,311,101Current
                  portion of capitalized lease obligations
              
              
              4,174,161
              
              
              1,977,755Due
                  to Timberman shareholders
              
              
              6,688,892
              
              
              6,593,951Related
                  party payable
              
              
              
              
              
              641,003Accrued
                  payroll, related taxes and benefits
              
              
              1,463,571
              
              
              1,213,106Total
                  Current Liabilities
              
              
              24,255,176
              
              
              22,845,534OTHER
                  LIABILITIESCapitalized
                  lease obligations
              
              
              3,610,442
              
              
              3,410,322Deferred
                  capital gain
              
              
              1,460,489
              
              
              1,521,804Total
                  Liabilities
              
              
              5,070,931
              
              
              4,932,126STOCKHOLDERS’
                  EQUITYPreferred
                  stock, par value $0.001, 5,000,000 shares authorized,
                  none issued and outstandingCommon
                  stock, par value $0.001, 300,000,000 shares authorized,
                  257,400,680 and 257,400,680 issued and outstandingin
                  2007 and 2006, respectively257,600
              
              
              257,600Additional
                  paid-in capital
              
              
              4,573,217
              
              
              4,573,217Accumulated
                  other comprehensive income
              
              
              71,046
              
              
              302,278Accumulated
                  deficit
              
              
              (14,272,084
              )
              
              (11,967,279
              )Total
                  Stockholders’ Deficit
              
              
              (9,370,221
              )
              
              (6,834,184
              )Total
                  Liabilities and Stockholders’ Deficit
              
              $
              19,955,886
              
              $
              20,943,476




See
      accompanying notes to financial statements.




3


AUSTRALIAN
        FOREST INDUSTRIES
  CONSOLIDATED
        STATEMENTS OF OPERATIONS (UNAUDITED)




For
                  the Three Months Ended
                December
                  31,2007
              
              2006REVENUE
                  - SALES
              
              $
              655,364
              
              $
              3,449,112COSTS
                  AND EXPENSESCost
                  of goods sold
              
              
              494,015
              
              
              1,794,836Selling,
                  general and administrative
              
              
              1,822,643
              
              
              2,060,123Provision
                  for doubtful accounts
              
              
              
              
              
              131,864Interest
                  expense
              
              
              499,229
              
              
              201,098Depreciation
                  and amortization
              
              
              157,295
              
              
              140,007Total
                  Costs and Expenses
              
              
              2,973,182
              
              
              4,327,928OPERATING
                  LOSS
              
              
              (2,317,818
              )
              
              (878,816
              )NON-OPERATING
                  INCOMEOther
                  income
              
              
              
              
              
              92,500Interest
                  income
              
              
              
              
              
              81,625Gain
                  on disposal of assets
              
              
              13,013
              
              
              103,062Total
                  Non-Operating Income
              
              
              13,013
              
              
              277,187NET
                  LOSS
              
              $
              (2,304,805
              )
              $
              (601,629
              )Net
                  Loss per share (basic and diluted)
              
              $
              (0.01
              )
              $
              (0.01
              )Weighted
                  average shares outstanding
              
              
              257,600,480
              
              
              257,400,680




See
      accompanying notes to financial statements.




4





AUSTRALIAN
      FOREST INDUSTRIES





CONSOLIDATED
      STATEMENTS OF CASH FLOWS (UNAUDITED)




For
                  the Three Months Ended
                March
                  31,2007
              
              2006CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  loss
              
              $
              (2,304,805
              )
              $
              (601,629
              )Adjustments
                  to reconcile net income to cash flows usedin
                  operating activities:Depreciation
                  and amortization expense
              
              
              157,295
              
              
              140,007Amortization
                  of leaseback gain
              
              
              (61,315
              )
              
              81,625Gain/loss
                  on sale of equipment
              
              
              
              
              
              (13,013
              )Changes
                  in operating assets and liabilities:(Increase)
                  decrease in prepaid expenses
              
              
              (83,370
              )
              
              5,555(Increase)
                  decrease in inventories
              
              
              436,219
              
              
              (245,664
              )(Increase)
                  decrease in receivables
              
              
              966,813
              
              
              (1,160,228
              )Increase
                  (decrease) in accounts payable and other liabilities
              
              
              1,206,240
              
              
              1,160,523Increase
                  (decrease) in bank overdraft
              
              
              (1,570,230
              )
              
              300,734Increase
                  in related party payable
              
              
              (641,003
              )
              
              (4,199
              )Net
                  Cash Provided by (Used in) Operating Activities
              
              
              (1,907,169
              )
              
              (323,276
              )CASH
                  FLOWS FROM INVESTING ACTIVITIESCapital
                  additions
              
              
              (476,239
              )
              
              (2,321,592
              )Net
                  Cash Used in Investing Activities
              
              
              (476,239
              )
              
              (2,321,592
              )CASH
                  FLOWS FROM FINANCING ACTIVITIESLoans
                  from shareholders
              
              
              94,941
              
              
              1,733,819Capital
                  leases
              
              
              2,396,526
              
              
              979,550National
                  Australian Bank loan
              
              
              123,288
              
              
              (125,400
              )Net
                  Cash Provided by (Used In) Financing Activities
              
              
              2,614,755
              
              
              2,587,969EFFECT
                  OF EXCHANGE RATES ON CASH
              
              
              (231,232
              )
              
              (14,142
              )INCREASE
                  (DECREASE) IN CASH
              
              
              115
              
              
              (71,041
              )CASH
                  AT BEGINNING OF PERIOD
              
              
              4,894
              
              
              127,014CASH
                  AT END OF PERIOD
              
              $
              5,009
              
              $
              55,973
  See
        accompanying notes to financial statements.




5




AUSTRALIAN
      FOREST INDUSTRIES AND SUBSIDIARY





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


March
      31,
      2007




NOTE
      A -
      BASIS OF PRESENTATION




The
      accompanying condensed consolidated financial statements have been prepared
      in
      accordance with generally accepted accounting principles for interim financial
      information. Accordingly, they do not include all of the information and
      footnotes required by generally accepted accounting principles for complete
      financial statements. In the opinion of management, all adjustments (consisting
      of normal recurring accruals) considered necessary in order to make the
      financial statements not misleading have been included. Results for the three
      months ended March 31, 2007 are not necessarily indicative of the results that
      may be expected for the year ending December 31, 2007. For further
      information, refer to the financial statements and footnotes thereto included
      in
      the Australian Forest Industries annual report on Form 10-KSB for the year
      ended
      December 31, 2006.




NOTE
      B -
      GOING CONCERN





As
      indicated in the accompanying financial statements, the Company incurred a
      net
      loss of $2,304,805 for the three months ended March 31, 2007, and has a
      Stockholders’ Deficit of $9,370,221 at March 31, 2007. Management’s plans
      include the raising of capital through the equity markets to fund future
      operations, seeking additional acquisitions, and generating of revenue through
      its business. Additionally, even if the Company does raise sufficient capital
      to
      support its operating expenses and generate adequate revenues, there can be
      no
      assurances that the revenue will be sufficient to enable it to develop business
      to a level where it will generate profits and cash flows from operations.
      Additionally, during the fourth quarter, the Company experienced a severe
      liquidity problem and was having difficulty obtaining logs to operate its
      businesses. Currently, management has entered into a processing contract with
      Weyerhaeuser to process their logs for which the Company is receiving a
      processing fee. These matters raise substantial doubt about the Company’s
      ability to continue as a going concern. However, the accompanying consolidated
      financial statements have been prepared on a going concern basis, which
      contemplates the realization of assets and satisfaction of liabilities in the
      normal course of business. These consolidated financial statements do not
      include any adjustments relating to the recovery of the recorded assets or
      the
      classification of the liabilities that might be necessary should the Company
      be
      unable to continue as a going concern.





NOTE
      C -
      LITIGATION





Oz
      has
      initiated a letter of demand for the $1,578,600 due from the Timbermans Group
      for full payment of funds lent to the Timbermans Group. The Timbermans Group
      is
      currently negotiating with Oz and has agreed to provide additional
      collateral.





6


**ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.**





**CAUTIONARY
      STATEMENT REGARDING FORWARD LOOKING STATEMENTS**





It
      should
      be noted that this Management’s Discussion and Analysis of Financial Condition
      and Results of Operations may contain “forward-looking statements.” The terms
“believe,” “anticipate,” “intend,” “goal,” “expect,” and similar expressions may
      identify forward-looking statements. These forward-looking statements represent
      the Company’s current expectations or beliefs concerning future events. The
      matters covered by these statements are subject to certain risks and
      uncertainties that could cause actual results to differ materially from those
      set forth in the forward-looking statements, including the Company’s dependence
      on weather-related factors, introduction and customer acceptance of new
      products, the impact of competition and price erosion, as well as supply and
      manufacturing restraints and other risks and uncertainties. The foregoing list
      should not be construed as exhaustive, and the Company disclaims any obligation
      subsequently to revise any forward-looking statements to reflect events or
      circumstances after the date of such statements, or to reflect the occurrence
      of
      anticipated or unanticipated events. In light of the significant uncertainties
      inherent in the forward-looking information included herein, the inclusion
      of
      such information should not be regarded as a representation that the strategy,
      objectives or other plans of the Company will be achieved. The Company wishes
      to
      caution readers not to place undue reliance on any such forward-looking
      statements, which speak only as of the date made.





During
      the fourth quarter, the Company experienced a severe liquidity problem and
      was
      having difficulty obtaining logs to operate its businesses. Currently,
      management has entered into a processing contract with Weyerhaeuser to process
      their logs for which the Company is receiving a processing fee.





On
      March
      24, 2007, the Company terminated agreements with each of Simba Mines, Inc.,
      and
      Bongani International Group Limited due to the parties’ failure to reach
      agreement on key terms. As a result of the termination, both the Stock Purchase
      Agreement and the Share Sale Agreement were mutually terminated by the parties
      thereto on March 24, 2007.





Oz
      has
      initiated a letter of demand for the $1,578,600 due from the Timbermans Group
      for full payment of funds lent to the Timbermans Group. The Timbermans Group
      is
      currently negotiating with Oz and has agreed to provide additional
      collateral.




**RESULTS
      OF OPERATIONS**





We
      are
      currently in the third year of operations and have generated significant
      revenues to date. Our activities from inception to date were related to our
      formation, preparation of our business model, arranging and planning financing
      and the acquiring all rights, title and interest to our timber rights located
      in
      the Canberra region in addition to the implementation and construction of our
      first sawmill also in the Canberra region.





Operating
      costs for the three-months ended March 31, 2007 aggregated $2,973,182. This
      includes costs incurred in general and administrative selling of $1,822,643.
      We
      incurred an operating loss of $(2,317,818) and a total net loss of $(2,304,805)
      or $(0.01) per share.





Operating
      costs for the three-month period ended March 31, 2006 aggregated $(878,816).
      This includes general and administrative selling of $2,060,123 and costs of
      goods sold of $1,794,836. As a result of the above we realized a loss of
      $(601,629) for the three-month period ended March 31, 2006 or $(0.01) per
      share.





**LIQUIDITY
      AND CAPITAL RESOURCES**





On
      March
      31, 2007 we had current assets of $952,325 and on December 31, 2006 we had
      current assets of $2,271,872.





7




Net
      cash
      used in operating activities for the three-month period ended March 31, 2007
      was
      $(1,907,169). Net cash used in investing activities for the three-month period
      ended March 31, 2007 was $(476,239). Net cash provided by financing activities
      was $2,614,755 for this period.





**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**





The
      Company’s discussion and analysis of its financial condition and results of
      operations are based upon its financial statements, which have been prepared
      in
      accordance with accounting principles generally accepted in the United States.
      The preparation of these financial statements requires the Company to make
      estimates and judgments that affect the reported amounts of assets, liabilities,
      revenues and expenses, and related disclosure of contingent assets and
      liabilities. On an on-going basis, the Company evaluates its estimates,
      including those related to bad debts, income taxes and contingencies and
      litigation. The Company bases its estimates on historical experience and on
      various other assumptions that are believed to be reasonable under the
      circumstances, the results of which form the basis for making judgments about
      carrying values of assets and liabilities that are not readily apparent from
      other sources. Actual results may differ from these estimates under different
      assumptions or conditions.





**RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS**





***Recent
      Accounting Pronouncements Affecting The Company:***





In
      June 2006, the Financial Accounting Standards Board (“FASB”) issued
      Interpretation 48, “Accounting for Income Tax Uncertainties” (“FIN 48”). FIN 48
      defines the threshold for recognizing the benefits of tax return positions
      in
      the financial statements as “more-likely-than-not” to be sustained by the taxing
      authority. Recently issued literature also provides guidance on the
      derecognition, measurement and classification of income tax uncertainties,
      along
      with any related interest and penalties. FIN 48 also includes guidance
      concerning accounting for income tax uncertainties in interim periods and
      increases the level of disclosures associated with any recorded income tax
      uncertainties. FIN 48 is effective for fiscal years beginning after
      December 15, 2006. The Company expects to adopt the provisions of FIN 48
      beginning in the first quarter of 2007. The Company is currently in the process
      of determining the impact, if any, of adopting the provisions of FIN 48 on
      its
      financial position, results of operations and liquidity.




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which
      defines fair value, establishes a framework for measuring fair value under
      other
      accounting pronouncements that permit or require fair value measurements,
      changes the methods used to measure fair value and expands disclosures about
      fair value measurements. In particular, disclosures are required to provide
      information on the extent to which fair value is used to measure assets and
      liabilities; the inputs used to develop measurements; and the effect of certain
      of the measurements on earnings (or changes in net assets). SFAS No. 157 is
      effective for fiscal years beginning after November 15, 2007 and interim periods
      within those fiscal years. Early adoption, as of the beginning of an entity’s
      fiscal year, is also permitted, provided interim financial statements have
      not
      yet been issued. The Company expects to adopt the provisions of FIN 48 beginning
      in the first quarter of 2008. The Company is currently evaluating the potential
      impact, if any, that the adoption of SFAS No. 157 will have on its consolidated
      financial statements.





In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements” (“SAB No. 108”).
      SAB No. 108 provides guidance on how prior year misstatements should be
      considered when quantifying misstatements in the current year financial
      statements. SAB No. 108 requires registrants to quantify misstatements using
      both a balance sheet and an income statement approach and evaluate whether
      either approach results in quantifying a misstatement that, when all relevant
      quantitative and qualitative factors are considered, is material. SAB No. 108
      does not change the guidance in SAB No. 99, “Materiality,” when evaluating the
      materiality of misstatements.





SAB
      No.
      108 is effective for fiscal years ending after November 15, 2006. Upon initial
      application, SAB No. 108 permits a one-time cumulative effect adjustment to
      beginning retained earnings. The Company adopted SAB No. 108 for the fiscal
      year
      ended December 31, 2006. Adoption of SAB No. 108 did not have a material impact
      on the consolidated financial statements.





8




In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities* (“SFAS 159”).
      SFAS 159 allows entities to measure at fair value many financial
      instruments and certain other assets and liabilities that are not otherwise
      required to be measured at fair value. SFAS 159 is effective for fiscal
      years beginning after November 15, 2007. We have not determined what
      impact, if any, that adoption will have on our results of operations, cash
      flows
      or financial position.




9


**ITEM
      3. CONTROLS AND PROCEDURES**




(a)
      Our
      principal executive officer and principal financial officer have each evaluated
      the effectiveness of our disclosure controls and procedures (as defined in
      Exchange Act Rules 13a-14 and 15d-14) as of a date within 90 days prior to
      the
      filing date of this quarterly report and have each concluded that our disclosure
      controls and procedures are adequate.




(b)
      There
      were no significant changes in our internal controls or in other factors that
      could significantly affect these controls subsequent to the date of their
      evaluation, including any corrective actions with regard to significant
      deficiencies and material weaknesses.




(c)
      Not
      applicable




10




**PART
      II**




**Item
      1. Legal Proceedings**





Oz
      has
      initiated a letter of demand for the $1,578,600 due from the Timbermans Group
      for full payment of funds lent to the Timbermans Group. The Company is currently
      negotiating with Oz and had agreed to provide additional
      collateral.





**Item
      2. Changes in Securities**


None





**Item
      3. Defaults Upon Senior Securities**


None





**Item
      4. Submission of Matters to a Vote of Security Holders**


None





**Item
      5. Other Information**


None





**Item
      6. Exhibits and Reports on Form 8-K**





a.
      Exhibit Index





Exhibit
      31.1 Certification of Chief Executive Officer





Exhibit
      31.2 Certification of Chief Financial Officer





Exhibit
      32.1 Certification of Chief Executive Officer





Exhibit
      32.1 Certification of Chief Financial Officer




b.
      Reports on Form 8-K




On
      March
      24, 2007, Australian Forest Industries (the “Company”) terminated agreements
      with each of Simba Mines, Inc., and Bongani International Group Limited due
      to
      the parties’ failure to reach agreement on key terms. As a result of the
      termination, both the Stock Purchase Agreement and the Share Sale Agreement
      (as
      those terms are defined below) were mutually terminated by the parties thereto
      on March 24, 2007.




11


**SIGNATURES**




In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly authorized.




**AUSTRALIAN
      FOREST INDUSTRIES**




/s/
                Michael TimmsName:
                Michael Timms
              Title:
                CEO, President and Chairman of the Board
              Date:
                May 21, 2007




/s/
                Colin BairdName:
                Colin Baird
              Title:
                Chief Financial Officer
              Date:
                May 21, 2007




12